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Zimbabwe, as with every other developing country except perhaps the high-volume low-population oil producers, has to watch its use of foreign currency very carefully while it grows its economy.
Exports need to be continually increased, to ensure that there are adequate inflows and that the rate of increase at least matches the rate of rising demand for foreign currency, otherwise there is a bottleneck on development. Imports have to be kept down. Fortunately import substitution is a good policy in itself, pushing up local production and paying local people, rather than foreigners. You can add wealth as an economy develops by building up your service sectors, from commerce onwards, but in the early stages of development increasing production is the only real option, and that means production in all sectors.
Our largest group of producers are obviously the farmers. They generate one of the top exports, our tobacco, as well as provide some useful extras through things like cotton. Rebuilding our horticulture sector will provide another inflow and as time goes on we can probably start exporting more food, although this might be limited since our neighbours are also pushing farming and so are not such a large market and we have the transport costs that go with any low-price high-volume export.
But at the moment their greatest single contribution is in import substitution. This year’s summer harvest is saving Zimbabwe around US$300 million in imports. The net saving is a little less since we do have to spend money, more than we should perhaps, on imports of fertiliser and fertiliser raw materials, but we are also working on that at the mining and industrial levels so that we get a lot more of our requirements from local raw materials.
The wheat harvest looks good, almost 11 months supply and with the imports already in stock there is an excellent chance we might never have to import wheat again. Everyone is aware that one of our largest imports, oil seed and crude vegetable oils, needs to be met quickly by our farmers, and the dairy industry is now growing again so at some stage another major import, milk, can be home grown. On the mining side the Second Republic has been pushing, successfully, for more investment. The results are not instant, since it takes time to dig the shafts and open a mine, but this is in progress and with the global recovery from Covid-19 in full swing our miners can make more money from what they are already producing and those prices make yet further investment more attractive.
Industry has been pushing up volumes, again largely import substitution rather than generating a lot of exports, which is something that we now need to think about more seriously since industry is still very reliant on the imported materials funded from exports of primary products. And there is the extra demand now for new equipment as factories retool, expand or open.
But generally we are coping and the harvest savings will have an immediate effect by cutting demand for foreign currency so giving the Reserve Bank of Zimbabwe a breathing space to start reducing, drastically, the delays in getting foreign currency to the auction buyers, a problem that simmers below the surface.
These delays, and the growth we are already seeing that has produced extra cash in Zimbabwean pockets that people want to spend on imported consumer goods, are given as reasons for the flourishing black market in foreign currency.
The trouble with that unregulated market is that it is a far smaller market than the real and official market, so small changes in pressures can have a large effect. There is a degree of self-fulfilling prophecy when the black-market rates rise, in that some of those who depend on this market then add to the pressure by converting local currency holdings into foreign currency as quickly as possible.
But the whole problem, once the understandable elements have been accounted for, is made a lot worse by the manipulation, intentional in many cases. There are still far too many people who earn their income from playing the market, sometimes for survival, sometimes as speculators betting on rapid rises in rates, and sometimes as the engineers of those rises. And the market can be manipulated by adding to or withholding cash, and we need to remember that the rate everyone quotes is set by a remarkably small group.
Everything is made a lot worse by the huge margins between the buying price and the selling price. We complain about the Zimbabwean banking sector and its charges. The black-market dealers are in a totally different class. We suspect the buying rate, what those people who queue for the small diaspora inflows from foreign-based family are prepared to sell their notes for, might be vaguely market related, but the selling rate implies a level of manipulation and profiteering that staggers the imagination.
The Government and the Reserve Bank have taken a number of steps to control this market. The biggest one, obviously, is the auction system although it is clear that a higher percentage of our export earnings need to be moved through this channel and the related interbank channel.
The other steps make it harder for people to manipulate the markets. Last year a number of measures were taken to reduce liquidity in the black-market. They worked quite well. But the dealers have found loopholes and new ways round the restrictions, with once again those who are basically economic parasites who produce nothing spending a lot of thought and effort to make money from nothing rather than using the same effort to produce something people want to buy.
Another set of steps is now in progress. This week the Reserve Bank froze the bank and mobile money accounts of 30 identified dealers in the black market. Presumably these are not the people actually on street corners, since knocking out just 30 will have negligible effect, but those higher up the food chain. And more such action is promised.
This process needs to be continuous. The 30 might be now extremely cramped in their operations, and will be even more cramped if there are successful prosecutions, but the space is likely to be rapidly filled by others, moving up or moving across the system. So the Reserve Bank needs to handle the replacements and keep doing this. It is a bit like dealing with shebeens. Close one and new one opens round the corner.
The pressure needs to be relentless until eventually it becomes a non-profitable business. And as we have seen the Reserve Bank needs to be continuously looking for the next innovative step and close that loophole as well. Eventually the productive sectors will kill the market, but while they are growing we need this daily policing.
Online Reporter